B of E Says Size Does Matter

The best way to address institutions that are "too big to fail" is to make them smaller and provide government protection for only the "utility" aspects of a bank's business, Mervyn King, the governor of the Bank of England said Tuesday.

His comments differ from those of American regulators, who are more focused on the capital held by large institutions, and came as Federal Reserve Board Gov. Daniel Tarullo is scheduled to address the "too big to fail" problem in a speech Wednesday.

In his speech to business groups in Edinburgh, Scotland, King effectively dismissed capital hikes as a solution.

The only way such a route could work, he said, would be if regulators allowed banks to convert debt into capital, an idea that was applauded last week by Federal Reserve Bank of New York President William Dudley. But even that idea creates problems.

"It is almost impossible to calculate how much contingent capital would be appropriate," King said.